New government faces fiscal and water management challenges, Moody’s warns

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By Marco Echevarria

Risk qualifier Moodys points out that it is important to analyze the measures that the next administration will announce to correct the fiscal path and improve the transparency of fiscal policy. 

Moodys, the global credit rating agency, has published a detailed analysis of the economic and fiscal situation in Panama.

This report examines the challenges and opportunities faced by the elected government especially in relation to water management for the population and the Canal, fiscal rigidity and the outstanding issue of Social Security Fund (CSS) pensions.

As Panama prepares for a change of leadership that will take place on July 1 when President-elect José Raúl Mulino assumes, he will face, according to Moodys, the urgency of addressing fiscal problems in a context of growing economic and social pressures.

From the prospect of sovereign risk, the issue of fiscal management in the coming years is key given the challenges that have increased in recent years related to the increase in the rigidity of spending and the narrow income base that the Panamanian government has.

He said that the issue of pensions was pending. However, in the speech on Sunday, May 5, on the night of President-elect, José Raúl Mulino made no mention of the issue of the CSS.

It will be very important for Moodys to analyze the measures announced by the next administration to correct the fiscal path, ensuring compliance with the fiscal rule and improving the transparency of fiscal policy, and also the ability of the government to promote these measures given the fragmentation that will take place in the National Assembly, the agency said.

The report also argues that the reaction of economic operators to the policies of the new government will be important since maintaining confidence to invest in the country is key as investment is the main driver for maintaining favorable growth rates close to 4%.

Moodys points out that this reaction will also allow the panorama to be clarified so that it can improve the perception of risk over Panama.

It is important to see if there would be improvements in risk perceptions that help reduce the cost of government funding as the significant increase in the interest burden is weighing significantly on Panama’s fiscal strength, he warns.

In his analysis on Panama Moody, he also mentions that the cancellation of the mining contract with Minera Panama after the contract was considered unconstitutional not only affects the prospects for growth in 2024, but also stresses the risks of governance and social that are likely to persist, regardless of the outcome of the elections.

In this regard, he believes that the next government will have to balance the social and environmental concerns of the population in formulating policies to avoid major protests, such as the hearings in July 2022 due to the increase in fuel prices and those that occurred against the mine in late 2023.

These risks will probably test the next administration’s ability to manage potentially challenging social and political conditions, he warns.

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Less income

The Moodys report also warns that fiscal rigidity has increased in Panama in recent years due to a persistent increase in the wage burden, which represents 30 per cent of current spending, in addition to higher subsidies that have become increasingly difficult to reduce to what is adding to the rising interest burden, while the finances of the social security system deteriorate.

Although the authorities have made efforts to rationalize staff costs and reduce some subsidies, the total proportion of rigid expenditure has increased. Meanwhile, government revenues have not grown at the pace of economic activity due to exemptions and evasions that limit tax revenues.

New government faces fiscal and water management challenges, warns Moodys

The average wait for ships to cross the Channel was in April on 50 boats. File.

With regard to the Panama Canal, the report mentions that due to low rainfall and drought, draught and transits have been reduced since mid-2023, in terms of credit the financial metrics of the Panama Canal Authority remain strong and are reinforced by a dynamic tariff mechanism that increases tariffs when transit or volumes are low.

This has led to a sustained robust ogperating performance and a manageable debt balance of $812 million through fiscal year 2023. However, in the medium term, water level problems are likely to limit income and potentially threaten growth,” says Moody.

With the arrival of the rains, the Channel is expected to increase the number of traffic to 32 per day from June 1 and the 44-foot draught that is currently 45 from June 15 will rise.

This article has been translated from the original which first appeered in fePrensa

U.S. imposes restrictions on Colombian company executives for maritime migration

The U.S. State Department The U.S. reported on Monday, May 6, that it imposed visas on executives from several Colombian carriers companies that transfer migrants by sea. The official press release explains that the application of these restrictions was made under the Immigration and Nationality Law (INA), which was changed precisely because of Nicaragua’s policy of irregular facilitating migration to North America.

The State Department’s note states that these companies take advantage of vulnerable irregular migrants operating services designed to facilitate irregular migration to the United States.

Several companies providing maritime transport are consciously facilitating the irregular movement of migrants and exposing them to exploitation and violence. U.S. visa restrictions promote accountability for these actors and send a signal that not one should take advantage of vulnerable migrants: either smugglers, private companies nor public officials, the State Department says.

They will continue to take action

The official note adds: “We will continue to take steps to impose visa restrictions against owners, executives and senior officials of a carrier as part of our broader campaign to eliminate such exploitation practices within and outside the Western Hemisphere, in collaboration with partners in the government and the private sector.

These actions were taken in accordance with a policy of the State Department announced in February 2024, which expanded and replaced an earlier policy for Nicaragua announced in November 2023, under Section 212(a(a(a)(C) of the Immigration and Nationality Law (INA) .

The policy is aimed at senior officials of companies providing land, whether or charter air transportation designed to be used primarily by people trying to migrate irregularly to the United States, the writing concludes.

Restriction to Nicaragua

Nicaragua, under the dictatorship of Daniel Ortega, has become the gateway for migrants looking for an easier route to follow its path to the United States, without having to cross the dangerous jungle route of the Darien Tapón, between the border of Colombia and Panama.

Numerous cases of migrants leaving by sea have been reported from San Andrés Island in Colombia, towards Corn Island in Nicaragua, so evading the Darién route.

In addition, the Ortega regime offers chater flights to migrants from different parts of the world, including the promotion of air flights from African countries to Managua.

Last March, the United States also imposed visas on executives of charter-flight companies that facilitate irregular migration from Nicaragua. The U.S. government said the measures responded to the growing trend of charter airlines.

La Prensa NI